Investors thirsty for pop in Coke stock
Tuesday December 6, 1:37 pm ET
By Anupama Chandrasekaran
NEW YORK (Reuters) - Coca-Cola Co. (NYSE:KO - News) may have injected some fizz into its profits this year but shareholders are still waiting to see a pop in its stock price.
When Coke Chief Executive Neville Isdell visits New York on Wednesday he can expect to face a barrage of questions on plans for acquisitions and resolution of its conflicts with bottlers and, how he will revive the iconic brand in key markets.
Shares of Coca-Cola have fallen 17.5 percent since the 62-year-old Irishman succeeded Doug Daft in June, 2004 and are 52 percent off their lifetime high of $88.94 set in July, 1998. By contrast, rival PepsiCo Inc.'s (NYSE:PEP - News) stock has soared 57 percent over the same period.
"Since taking over last year, management hasn't promised the market much," JP Morgan analyst John Faucher, who has an "overweight" rating on Coca-Cola, wrote in a research note. "While understandable, this has become a source of frustration for investors."
So far this year, Coke is up 2 percent in 2005 but its performance is outdone by PepsiCo's 15 percent rise with the stock hitting a life high on Tuesday.
Coca-Cola's quarterly profits have topped Wall Street forecasts, so far this year, but Germany, India, Philippines and parts of Europe continue to be sore spots.
Last year, Coca-Cola cut its annual earnings per share growth to the high single digits in percentage terms and reduced annual unit case volume growth, a key sales measure in the beverage industry, of between 3 percent and 4 percent over the long term.
But analysts are split on Wall Street on whether Coke will be able to achieve the estimated 6 percent to 8 percent annual earnings growth rate.
ACQUISITION PLANS
One way for Coke to meet its growth targets could be through acquisitions, Morgan Stanley analyst Bill Pecoriello said.
One way to assure the company's future is capturing more consumers who have moved from sugary soft drinks to diet versions, or to low-or no-calorie beverages such as water and orange juices with reduced sugar.
Some analysts perceive this year's rollout of new Coke products as a cost-intensive and time consuming exercise.
"Coke, ultimately, needs diversifying acquisition to achieve long term growth goals," Pecoriello wrote in a note.
CLARITY ON BOTTLER ISSUES
Investors also want to know more about Coke's difficult relationship with its bottlers.
When Coke recently told its Latin American bottlers about a possible concentrate price increase in 2007, Mexico-based Coca-Cola Femsa (NYSE:KOF - News; Mexico:KOFL.MX - News) responded by threatening to cut advertising.
Bottlers buy concentrate from Coke to make the soft drinks and they play an important role of maintaining retailer relationships, delivering drinks and running promotions.
Last week, the chief executive of Coca-Cola's largest bottler Coca-Cola Enterprises Inc. (NYSE:CCE - News) resigned, which Morgan Stanley's Pecoriello said probably resulted from pressure from Coke.
"We believe that investors will be looking for some clarity on the Latin American issue, any implications for other regions and comments regarding Coca-Cola Enterprises," Merrill Lynch analyst Christine Farkas wrote in a research report.
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